Silicon Valley Bank’s former parent company, now known as SVB Financial Trust, can move forward with a lawsuit seeking to recover $1.93 billion in deposits seized by the Federal Deposit Insurance Corporation (FDIC) after the bank’s collapse in March 2023, a federal judge ruled on Thursday.
U.S. District Judge Beth Labson Freeman, presiding in San Jose, California, found that SVB Financial Trust had sufficiently alleged that the FDIC, in its corporate capacity, retained control over the disputed deposits — though she described the trust’s allegations as “vanishingly thin.”
The FDIC had argued that control over the funds rested with the FDIC acting as receiver for the failed Silicon Valley Bank, a legally distinct role. SVB Financial Trust is also pursuing claims against the FDIC in its capacity as receiver.
Judge Freeman also ruled that the former parent can attempt to prove it reasonably relied on FDIC assurances that the deposits would remain protected, which led the trust to leave the funds untouched. However, the judge dismissed the trust’s due process claim.
Lawyers for both the FDIC and SVB Financial Trust did not immediately respond to requests for comment on Friday.
Silicon Valley Bank collapsed after surging interest rates triggered significant losses in its portfolio of long-term government bonds and mortgage-backed securities. The crisis led to a bank run, partly fueled by the bank’s unusually high proportion of uninsured deposits, and sent shockwaves through the tech startup community, which relied heavily on the bank.
At the time of its collapse, Silicon Valley Bank held approximately $209 billion in assets, making it one of the largest bank failures in U.S. history. Much of its business was later acquired by First Citizens BancShares, a North Carolina-based lender.
The ruling comes about six weeks after the FDIC sued 17 former Silicon Valley Bank executives and directors, including former CEO Gregory Becker, seeking to recover billions of dollars for gross negligence and breaches of fiduciary duty.
“SVB represents a case of egregious mismanagement of interest-rate and liquidity risks,” the FDIC said in its filing last month.
Case Information:
SVB Financial Trust v. FDIC, U.S. District Court, Northern District of California, No. 23-06543.